4 Developed Market ETFs Better Than SPY
While the last few days have been nothing to write home about, there is no denying that U.S. stocks are off to a solid start in 2013.
A look at the chart of the SPDR S&P 500 (NYSE: SPY) indicates the current rally was born in November 2012, enabling experts and pundits to crow about the out-performance of U.S. equities for several months now.
Indeed, U.S. stocks outpaced select marquee international markets in recent months. Plenty of emerging markets, Brazil among them, have been laggards. In February, U.S. stocks were better than their Canadian, German, Mexican and Spanish counterparts, just to name a few nations.
And if Japan, with the benefit of the plunging yen, is removed from the equation, it might seem as though U.S. equities are dominating among developed market fare. That is not entirely true, at least not over the past six months. Have a look at these developed market ETFs that have trounced the SPDR S&P 500 over the past six months.
iShares MSCI New Zealand Capped Investable Market Index Fund (NYSE: ENZL) Since September 2012, the iShares MSCI New Zealand Capped Investable Market Index Fund has outpaced SPY by about 260 basis points and that is no small feat for the lone New Zealand ETF. Overall, New Zealand's economy is sound, but exports are a significant part of the equation there. Impressively, ENZL has risen in tandem with the New Zealand dollar.
Colloquially referred to as the kiwi, the strong currency is weighing on New Zealand's export industries though to this point, the central bank there has only mentioned currency market intervention and with interest rates at 2.5 percent, low by the country's standards, another rate cut does not appear imminent.
Those are the red flags concerning ENZL and New Zealand, but the strong currency does help investors in at least one way. ENZL has a 30-day SEC yield of 4.11 percent.
WisdomTree Australia Dividend Fund (NYSE: AUSE) With just over $78.2 million in assets under management, the WisdomTree Australia Dividend Fund does not fit the bill as a large ETF. However, it fits the bill when it comes to delivering gains that are well in excess of SPY's. Over the past six months, unheralded AUSE has delivered more than triple returns of SPY.
Australia's economy, the world's 12th-largest, has impressively dodged recession for more than two decades. Unlike the U.S., Japan, France or the U.K., Australia has an AAA sovereign credit rating. The most concerning near-term risk to the Australian investment thesis is declining investment in the mining sector. The Reserve Bank of Australia expects mining sector investment to peak later this year, but some stocks such as BHP Billiton (NYSE: BHP) may already be pricing in cooling mining activity.
AUSE is well diversified beyond the materials sector. At just 9.2 percent of the ETF's weight, the materials group is just the fifth-largest sector weight in the fund. That provides investors with some cushion against declining investment in Australia's mining sector. The key is getting other sectors to pick up the slack, something RBA has admittedly grappled with to this point.
iShares MSCI Denmark Capped Investable Market Index Fund (NYSE: EDEN) Neither Denmark nor EDEN have been receiving much attention from most U.S. investors as of late and the ETF's mere $3.5 million in assets attests to that fact. However, as has been noted, there is a lot to like with this Nordic nation.
Not only is Denmark not a eurozone member, but its currency, the krone, is pegged to the euro. That means Denmark has a leg up on export rivals Norway and Sweden. Due in large part to the eurozone crisis, investors have flocked to AAA-rated Sweden and Norway, bidding the Swedish krona and Norwegian krone high.
That has hampered export competitiveness in those two countries, but not in Denmark. Denmark has defended the euro peg and has even go so far as to initiate a negative interest rate policy. Still, EDEN is up 13.3 percent in the past six months and Denmark also gives investors the benefit of an AAA credit rating.
iShares MSCI Sweden Index Fund (NYSE: EWD) Despite the strengthening krona, EWD has been an admirable performer over the past six months, returning more than 11 percent in that time. Swedish economic growth will not wow investors this year with a government forecast of 1.1 percent, but that is expected to nearly triple in 2014.
In the fourth quarter of last year, Sweden's GDP was hampered by declining exports, indicating that the strong currency and Eurozone woes combined to stifle strong gains in Swedish consumer spending. With interest rates at one percent, Riksbank does not have a lot of room to cut. In fact, the central bank is planning to leave rates steady for another year before looking towards increases.
Overall, the Swedish economy is sound, though not spectacular and investors get exposure to another AAA-rated country with EWD. One downside for risk-averse investors: EWD has a beta of 1.83 against the S&P 500.
Some interesting facts about the nations tracked by the four ETFs mentioned here: Three – Australian, New Zealand and Sweden – have strong currencies. Three – Australia, Denmark and Sweden – have AAA credit ratings. Two – Australia and New Zealand – have high interest rates relative to the rest of the developed world. None of the four have engaged in quantitative easing, at least not on par with that of the Federal Reserve.
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